As a small business owner, you know that cash flow is always a concern. Most businesses, big or small, cannot operate effectively without the use of credit.
There are several different types of credit that you may decide to use. One of the easiest to acquire and use is a credit card. Although there are pros and cons of using credit cards to finance your home-based business operations, the careful use of credit cards can be a smart choice.
8 Advantages credit cards offer to a home-based business
When used carefully, credit cards offer a rewarding and effective method of aligning cash flow for a small business.Here are eight advantages of having a credit card exclusively devoted to your home business:
• by maintaining low and workable balances, and by making payments in a consistent and timely manner, you can develop a favorable credit history, which is beneficial when your business requires additional financing.
• acquiring equipment and supplies can be achieved more readily if your business has access to credit.
• costs for expensive items can be spread out more evenly.
• choosing the right credit card and learning how to ‘float’ cards can often result in months of interest free credit.
• many credit cards offer buyer protection insurance as part of the package.
• credit cards provide a financial trail, which aids you and your bookkeeper in tracking purchases and expenses.
• “reward points” can sometimes be translated into even more savings for your business.
• because you are offered a pre-determined credit limit, assessing whether or not your business can afford a particular purchase is easy to ascertain.
Disadvantages of using credit cards to finance your home business
As you are probably aware, it is easy to fall into the “credit card” vortex. Far too many failed home-based businesses have found out the hard way how easy it is to abuse credit cards. In hindsight, they realize how quickly credit cards spiral down from being an effective financing tool to becoming an albatross around their necks.
The ultimate goal of any credit card company is to make money and the primary source of their income comes from the often-exorbitant interest fees collected from their customers. Credit card companies rely on people who maintain high balances as their bread and butter.
Credit card companies love people who only make the minimum monthly payment because they earn a lot of interest from those customers. Ironically, some credit card companies refer to customers who consistently pay off their monthly balances as ‘deadbeats’ (tongue-in-cheek, of course). They obviously don’t like it when smart consumers beat them at their own game!
How to choose a credit card for your home business needs
With the ever increasing array of “special offers” from credit card companies, choosing the best credit to meet your home business needs can be a difficult task. Before you commit to any credit card, do your homework. Familiarize yourself with credit card jargon and always read the fine print before you sign on the dotted line. In particular, look at the repayment terms as well as the interest rates and service charges.
Aim to be a deadbeat
The smartest way to use credit cards is to pay them off in full each month. If you can do this, you’ll earn the designation “deadbeat” and outsmart the credit card companies at their own game. Good luck!
The above article is intended for informational purposes only and should not be construed as financial or legal advice.
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I’ve heard of businesses that got their start using credit cards to finance everything and went on to become multi-million dollar companies. Then again, for every one of those there are probably several businesses that got into way too much debt too quickly and couldn’t overcome the awesome hurdle of credit card interest rates and fees. Thanks for laying out some of the pros and cons of it all here!
You’re quite right about that Easton, however I guess I am conservative because the thought of financing a business on credit cards scares me silly! Thanks for stopping by and leaving a comment, it’s great to hear from you.
This is a really interesting post. We usually focus on the downside of credit cards, but your post makes it clear that people with excellent credit management skills can gain from credit cards. I know I pay my balance off in full every month, but I use the grace period and 2% rewards to manage cash flow and even make money.
I’m interested in finance for small business people. I recently posted about bad small business credit management — and, quite some time ago, lines of credit for new businesses. Poor cash flow management is a key reason for small business failure, so I feel strongly that business owners — including consultants — need to manage their credit wisely.
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Good day, yours is such an informative blog, keep it up=) One way of helping people build their businesses is to suggest that they apply for BUSINESS CREDIT CARDS. Generally, allows better tracking of small business expenses and this is very important. Hope this resource helps, and hope to read more from your blog. have a great day!